Insurance; Declaratory Judgment; Whether Plaintiff Insurer had Standing to Seek
a Declaration as to Defendant Insurers' Contractual Duties to Defend a Mutual Insured;
Whether Insurer had a Duty to Defend. This case stems from an underlying
action in which the state sued Lombardo Brothers Mason Contractors, Inc.
(Lombardo), alleging defective masonry work on the UConn School of Law’s
library. A number of carriers insured Lombardo's work on the project,
including plaintiff Travelers Casualty and Surety Company (Travelers) and
defendants Netherlands Insurance Company (Netherlands) and Peerless Insurance
Company (Peerless). After Travelers' coverage ceased, Netherlands provided primary
liability coverage to Lombardo and Peerless provided umbrella coverage over and
above that provided by Netherlands. Travelers defended Lombardo in the
underlying action, and it brought this action seeking a declaration that Netherlands
and Peerless breached their duties to defend Lombardo in the underlying suit.
It also sought a declaration as to the defendants' pro rata shares of
Lombardo's defense. The defendants moved to dismiss the action, arguing that Travelers
lacked standing to pursue a claim based on their contractual rights because it was
not a party to their insurance policies and had no rights under their
policies. In denying the motion to dismiss, the trial court found that while
there was no contractual relationship between Travelers and the defendants, each
party had certain rights and responsibilities with regard to their respective insurance
policies with Lombardo. It stated that Travelers had a very practical interest
in a declaration of the defendants' obligations under their policies with
Lombardo because a determination of the defendants' obligations would affect Travelers’
obligations to Lombardo. The trial court then ruled that Netherlands had a duty
to defend Lombardo because the underlying action alleged that there was damage
to the project that potentially occurred within the dates of Netherlands'
coverage. In so ruling, it rejected Netherlands' claim that it had no duty to
defend under the "known loss" provision in its policies, which
provides that there is no duty to defend where the insured has knowledge that property
damage occurred before coverage begins. The court found that neither the state
nor Lombardo had knowledge of actual losses prior to the start of Netherlands'
coverage. It also noted that Peerless' duty to defend would have been
triggered only if it had found that Netherlands had no duty to defend under the
"known loss" provision. The defendants appeal, claiming that the
trial court improperly denied their motion to dismiss and improperly found that
Netherlands had a duty to defend. They also argue that the court improperly
determined the allocation period in calculating Netherlands' pro rata share of
Lombardo's defense and improperly prohibited them from presenting evidence of Travelers’
unclean hands.